A risk profile refers to an individual investor’s ability and willingness to take any risks with their investments. Understanding an investor’s risk profile is extremely important because it helps financial advisors have a clearer picture regarding the right investment for their portfolio.
Investors with low risk profiles will always be directed towards much safer investment avenues that come with a lower yield, as opposed to investors that have a higher risk profile. The financial advisors would direct them towards high-risk, high-ROI investments such as blue-chip funds.
As there is no financial investment that is absolutely risk-free, all investors do make their peace with the fact that they will have to face some risk. But, the volatility that they are okay with tends to vary from person to person.